[Congressional Record Volume 158, Number 49 (Monday, March 26, 2012)]
[House]
[Pages H1551-H1553]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




      BUSINESS RISK MITIGATION AND PRICE STABILIZATION ACT OF 2012

  Mr. GARRETT. Mr. Speaker, I move to suspend the rules and pass the 
bill (H.R. 2682) to provide end user exemptions from certain provisions 
of the Commodity Exchange Act and the Securities Exchange Act of 1934, 
and for other purposes, as amended.
  The Clerk read the title of the bill.
  The text of the bill is as follows:

                               H.R. 2682

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Business Risk Mitigation and 
     Price Stabilization Act of 2012''.

     SEC. 2. MARGIN REQUIREMENTS.

       (a) Commodity Exchange Act Amendment.--Section 4s(e) of the 
     Commodity Exchange Act (7 U.S.C. 6s(e)), as added by section 
     731 of the Dodd-Frank Wall Street Reform and Consumer 
     Protection Act, is amended by adding at the end the following 
     new paragraph:
       ``(4) Applicability with respect to counterparties.--The 
     requirements of paragraphs (2)(A)(ii) and (2)(B)(ii) shall 
     not apply to a swap in which a counterparty qualifies for an 
     exception under section 2(h)(7)(A) or satisfies the criteria 
     in section 2(h)(7)(D).''.
       (b) Securities Exchange Act Amendment.--Section 15F(e) of 
     the Securities Exchange Act of 1934 (15 U.S.C. 78o 10(e)), as 
     added by section 764(a) of the Dodd-Frank Wall Street Reform 
     and Consumer Protection Act, is amended by adding at the end 
     the following new paragraph:
       ``(4) Applicability with respect to counterparties.--The 
     requirements of paragraphs (2)(A)(ii) and (2)(B)(ii) shall 
     not apply to a security-based swap in which a counterparty 
     qualifies for an exception under section 3C(g)(1) or 
     satisfies the criteria in section 3C(g)(4).''.

     SEC. 3. IMPLEMENTATION.

       The amendments made by this Act to the Commodity Exchange 
     Act shall be implemented--
       (1) without regard to--
       (A) chapter 35 of title 44, United States Code; and
       (B) the notice and comment provisions of section 553 of 
     title 5, United States Code;
       (2) through the promulgation of an interim final rule, 
     pursuant to which public comment will be sought before a 
     final rule is issued; and
       (3) such that paragraph (1) shall apply solely to changes 
     to rules and regulations, or proposed rules and regulations, 
     that are limited to and directly a consequence of such 
     amendments.

  The SPEAKER pro tempore. Pursuant to the rule, the gentleman from New 
Jersey (Mr. Garrett) and the gentleman from Texas (Mr. Al Green) each 
will control 20 minutes.
  The Chair recognizes the gentleman from New Jersey.


                             General Leave

  Mr. GARRETT. Mr. Speaker, I ask unanimous consent that all Members 
have 5 legislative days in which to revise and extend their remarks and 
to add any extraneous material on the bill.
  The SPEAKER pro tempore. Is there objection to the request of the 
gentleman from New Jersey?
  There was no objection.
  Mr. GARRETT. I yield myself 3 minutes.
  Mr. Speaker, this bipartisan bill would do what? It would provide a 
clear exemption from margin requirements, margin requirements imposed 
by the Dodd-Frank Act on where? On swap transactions for so-called end-
users who use derivatives to hedge their business risks and whose swap 
transactions really do not pose a systemic risk to the financial 
system.
  Following the really late night of the Dodd-Frank conference 
committee deliberations, numerous assurances were made that margin 
would not be required on end-users' transactions. Now, these assurances 
were subsequently followed up by formal letters and colloquies by the 
very same architects of the bill themselves. Everyone was told that 
Congress clearly intended for the language to exempt end-users from the 
bill's margin requirements.
  Unfortunately, the regulators have interpreted it a different way, 
and they have interpreted Dodd-Frank's somewhat rushed language as not 
providing a clear exemption for these end-users.
  Representative Grimm's bill here today finally provides American 
businesses with the certainty that they need to use derivatives to 
hedge against business risk. End-users, you know, were not the cause of 
the financial crisis; and by any measure whatsoever, end-users are not 
systemically significant.
  Who are these end-users that we're talking about here? Well, they are 
the Main Street businesses from all over the country that represent all 
types of industries that rely on the use of derivatives to responsibly 
hedge their own business risk, and so they should not be and were not 
ever considered under the same umbrella, if you will, of regulations as 
banks are that are subject to posting margins on their swap 
transactions.
  In requiring end-users to be subject to a mandatory margin 
requirement, what it basically does is force commercial entities to act 
like banks. So, without a margin exemption, the cost of hedging for 
these would rise dramatically, and that would needlessly tie up working 
capital that otherwise could and should be used to expand business 
investments, build factories, or create jobs.

[[Page H1552]]

  So I conclude on this. It is critical that we provide U.S. Main 
Street businesses across this country with this important certainty, 
with this clarity. I urge my colleagues on both sides of the aisle to 
support this bipartisan bill.
  I reserve the balance of my time.
  Mr. AL GREEN of Texas. Mr. Speaker, I would like to note that I will 
be yielding 10 minutes of time to my colleague from the Ag Committee, 
Mr. Owens.
  The SPEAKER pro tempore. Without objection, the gentleman from New 
York will control 10 minutes.
  There was no objection.
  Mr. AL GREEN of Texas. I yield myself such time as I may consume.
  Mr. Speaker, I do want to concur with those who've announced that 
bipartisanship is alive and well at the committee level and on the 
floor of this House today. I'd like to thank my colleagues on the other 
side, Mr. Garrett and Mr. Grimm, for their cooperation and our ability 
to work together.
  I'd also like to especially thank the staff of the full committee and 
the staff of each congressional office for the outstanding work the 
staff members have done. It is very difficult to get legislation to 
this point without the benefit of staff having had a helping hand, and 
we thank the staff.
  Mr. Speaker, the passage of the Wall Street Reform and Consumer 
Protection Act of 2010 established a system for regulating the over-
the-counter--that's the OTC--derivatives market. Authority is provided 
to the Securities and Exchange Commission, the Commodity Futures 
Trading Commission, and the banking regulators, which have been 
proposing the regulation that will eventually govern the OTC 
derivatives market.
  Previously, banks and other financial companies were able to amass 
considerable risk using OTC derivatives without reporting to the 
regulator or to the public. The Wall Street Reform Act requires that 
most derivative transactions, primarily those between dealers, now be 
centrally cleared and exchange traded whenever possible and that all 
transaction data be collected and publicly reported at clearinghouses 
or swap-data repositories.

  The new rules are intended to allow regulators and the public to 
better analyze the derivative risk-taking activities of banks and other 
financial companies. The new rules are not intended to hold in place 
onerous requirements on companies that use derivatives only as a means 
to hedge the risk of the company.
  H.R. 2682 clarifies Congress' intent when passing the Wall Street 
Reform legislation by more clearly exempting end-users that are only 
using swaps to hedge or to mitigate commercial risk.
  H.R. 2682 is also consistent with a colloquy between Representatives 
Frank and Peterson, as well as a letter from Senators Lincoln and Dodd, 
which noted that the reform legislation provided the regulators with 
sufficient authority to exempt end-users from the margin requirements.
  This bill passed favorably out of both the House Financial Services 
Committee and House Agriculture Committee with strong bipartisan 
support. In no way should H.R. 2682 undo any of the important 
protections of reform legislation. Its purpose is to recognize the end-
users' responsibility to use swaps as a part of their businesses.
  I congratulate Mr. Grimm and Mr. Peters, and I encourage you to 
support this bill.
  I reserve the balance of my time.
  Mr. GARRETT. At this time, I yield 5 minutes to the gentleman from 
New York (Mr. Grimm), the author of the underlying legislation and also 
someone who has been instrumental in making sure that we could work in 
a bipartisan manner to get it to the floor today.
  Mr. GRIMM. I would like to thank Chairman Garrett.
  I rise today in support of my legislation, H.R. 2682, the Business 
Risk Mitigation and Price Stabilization Act of 2012. H.R. 2682, I'm 
very proud to say, is truly a bipartisan bill; and I would like to 
thank my colleagues on the other side of the aisle, especially Mr. 
Peters of Michigan, Mr. Austin Scott of Georgia, and Mr. Owens of New 
York, for working with me on this extremely important issue.
  H.R. 2682 will clarify Congress' intent under the Dodd-Frank Act and 
provide an explicit exemption from having to post margin for true 
commercial end-users of over-the-counter derivatives. Despite clear 
legislative history to the contrary, regulators continue to 
misinterpret the Dodd-Frank Act, giving them authority to impose margin 
requirements on end-users.
  This bill will ensure once and for all that true end-users are not 
subjected to margin requirements that Congress never intended to be 
applied and make sure that regulators do not attempt to exercise 
authorities they were never granted by Congress in ways that will 
certainly do harm to the economy, specifically, by diverting working 
capital away from investment and expansion, which fuels economic growth 
and certainly job creation.
  True end-users are firms and companies that use derivatives to manage 
their various financial risks. For example, firms use these products to 
lock in the costs of raw materials that they're going to need in the 
future, which ultimately protects American consumers and creates jobs 
here in America. If true end-users were required to post margin, their 
hedging costs may become so high that they could abandon the practice, 
leading to great price variations for raw materials and, ultimately, an 
increase in consumer prices for a whole host of products from food to 
energy.

                              {time}  1530

  At a time when constituents on Staten Island and in Brooklyn are 
struggling with sky-high tolls, rising gas prices, they simply can't 
afford to pay more for items they rely on every day. Furthermore, this 
legislation will not only help to keep consumers' prices stable, but it 
will also protect U.S. jobs. The cost savings end users will realize by 
not being required to post margin will free up capital for business 
expansion and job creation.
  In fact, it has been shown that imposing a 3 percent margin on over-
the-counter derivatives held by S&P 500 companies could cut capital 
spending by $5.1 to $6.7 billion. That could lead to 100,000 to 130,000 
job losses. At a time when unemployment is 8.3 percent, this cannot be 
overlooked or overstated.
  Finally, without this clear exemption provided in this legislation, I 
believe that U.S.-based commercial end users may attempt to continue 
hedging and avoid posting margins by moving their derivatives products 
overseas. That would put U.S.-based financial institutions at a major 
disadvantage and, as a consequence, drive even more U.S. jobs overseas. 
In addition, this could also encourage regulatory arbitrage and 
actually increase systemic risk to a worldwide financial system.
  In closing, I ask that my colleagues support this commonsense, 
bipartisan pro-jobs legislation.
  Mr. OWENS. Mr. Speaker, I yield myself such time as I may consume. I 
rise in support of H.R. 2682.
  I would like to thank Chairman Lucas and Ranking Member Peterson for 
their leadership on this important issue, as well as Mr. Scott from the 
Agriculture Committee, and our colleagues on Financial Services, Mr. 
Peters, Mr. Green and, of course, Mr. Grimm.
  As a cosponsor of H.R. 2682 and as one of the authors of this 
legislation, I believe that the definition of an ``end user'' needs to 
be very specific to ensure that the CFTC implements the intent of 
Congress in exempting true end users from certain derivatives 
regulations.
  My district in upstate New York includes a number of entities that 
would be inappropriately captured as swap dealers under the proposed 
CFTC rules, including agricultural cooperatives, farm credit 
institutions, community banks, and electric cooperatives. Clearly, none 
of these entities were intended by Congress to be covered by these 
regulations.
  While each of them uses derivatives to meet their business needs, 
they are not engaging in derivatives transactions as their primary 
businesses. If forced to comply with the increased margin and clearing 
requirements, it could make the services currently offered by end users 
cost prohibitive and impede their ability to conduct business, likely 
resulting in higher prices for my constituents and diverting capital 
that could otherwise be invested and used to help create jobs. These 
are all negative consequences that our economy can ill afford at this 
time.

[[Page H1553]]

  These financial instruments are particularly important for dairy 
farmers in my district who depend on their cooperatives to offer them 
tools to manage price risks and to lock in margins. A local cooperative 
must have the ability to enter into swaps with its members and have 
affordable access to the market with other commercial counterparties to 
offset the risk of providing these swaps and forward contracts. Under 
the CFTC's proposed rules, the cooperatives would be regulated as a 
swap dealer even though they are using derivative contracts to hedge 
commercial risk and to support the viability of their members.
  There is no doubt in my mind that the derivatives market needs to be 
regulated and that certain participants need to post margin to cover 
their trades in order to mitigate systemic risk throughout the 
financial system. However, this legislation will codify Congress' 
intent and ensure that commercial end users can continue to hedge 
against risk.
  I urge my colleagues on both sides of the aisle to support this 
important bipartisan legislation, and I yield back the balance of my 
time.
  Mr. GARRETT. Once again, Mr. Speaker, I would like to yield 3 minutes 
to the gentleman from Texas (Mr. Conaway).
  Mr. CONAWAY. Thank you to Mr. Garrett of New Jersey.
  Mr. Speaker, I rise today in full support of H.R. 2682, the Business 
Risk Mitigation and Stabilization Act.
  As chairman of the General Farm Commodities and Risk Management 
Subcommittee, I am pleased to see this bill brought to the floor today. 
The Business Risk Mitigation and Stabilization Act will offer 
legislative clarification for one of the most important points that 
underlies Dodd-Frank, which is that nonfinancial end users should not 
be required to post margin.
  In hearings and letters, Congress could not have been clearer in its 
intent to exempt nonfinancial end users from being required to post 
margins for their risk mitigation transactions. Yet, despite our clear 
intent, regulators have proposed rules that could result in margin 
requirements for these end users.
  Every dollar that a business has tied up in a margin account is a 
dollar it cannot spend on job creation or other productive business 
purposes. The Chamber of Commerce has recently estimated the costs of 
requiring these end users to post margins could reach billions of 
dollars and cost over 100,000 jobs, all over the clear and concise 
objections of Congress.
  This legislation simply affirms the original position of Congress 
that nonfinancial end users do not need to tie up scarce resources to 
participate in the swaps markets. Much like H.R. 2779, which we debated 
earlier, the Business Risk Mitigation and Stabilization Act would not 
undermine the established goals of Dodd-Frank. Nonfinancial end users 
represent less than 10 percent of the swaps market and have never posed 
a systemic risk to the broader financial markets.
  As we in Congress continue to advance legislation to put America back 
to work, we should prevent unnecessary regulatory burdens on 
businesses. I am pleased to support H.R. 2682 because it will do just 
that.

  I want to thank Mr. Grimm, Mr. Peters, Mr. Scott, and Mr. Owens for 
sponsoring this important legislation. I am pleased to note that it is 
a bipartisan effort and is supported overwhelmingly by both committees.
  I also want to thank my chairman, Mr. Lucas, and Chairman Bachus, for 
their work in clarifying Congress' intent for regulators with respect 
to end users. This legislation will protect jobs and businesses 
struggling to meet the multitude of mandates coming out of Washington.
  Mr. AL GREEN of Texas. Mr. Speaker, I would simply close by 
indicating that I concur with my colleagues. This legislation does 
enjoy the bipartisan support that we believe will help us get a message 
to our Members that it is a good piece of legislation that should be 
totally supported by the membership. So, I would ask my colleagues and 
Members of the Congress to please support this legislation.
  I yield back the balance of my time.
  Mr. GARRETT. Mr. Speaker, I think we have one more speaker. I yield 2 
minutes to the gentleman from Georgia (Mr. Austin Scott).
  Mr. AUSTIN SCOTT of Georgia. Mr. Speaker, I rise today in support of 
H.R. 2682, the Business Risk Mitigation and Price Stabilization Act of 
2012.
  This bill provides a clear exemption for nonfinancial end users that 
qualify for the clearing exemption under title VII of the Dodd-Frank 
Wall Street Reform and Consumer Protection Act.
  Across the country, consumers and businesses alike are confronted 
with risks that are associated with their day-to-day operations. To 
manage this risk, businesses use over-the-counter derivatives to 
provide price certainty and stability in many other conditions which 
may arise or may otherwise be less specific. Consumers, in turn, 
benefit from these business prudent risk management practices a through 
lower volatility in the day-to-day prices of the products that they 
purchase.
  Due to the importance of protecting the consumer while providing a 
pro-growth environment for business, Congress provided an exemption 
from clearing and margin requirements for businesses and individuals 
who are not financial institutions. By providing this exemption, less 
than 10 percent of the capital involved in the derivatives market is 
relieved of the burdensome regulations and can be kept in the U.S. 
economy. To further the initial goal, H.R. 2682 clarifies Congress' 
intent of keeping much needed capital in the U.S. markets, which plays 
an important role in the country's economic growth.
  For this reason, I ask my colleagues to support H.R. 2682 so 
businesses and individuals can manage their risks of day-to-day 
operations while not being constrained with the burdensome capital 
requirements.
  Mr. GARRETT. I yield back the balance of my time.
  The SPEAKER pro tempore (Mr. Huizenga of Michigan). The question is 
on the motion offered by the gentleman from New Jersey (Mr. Garrett) 
that the House suspend the rules and pass the bill, H.R. 2682, as 
amended.
  The question was taken.
  The SPEAKER pro tempore. In the opinion of the Chair, two-thirds 
being in the affirmative, the ayes have it.
  Mr. GARRETT. Mr. Speaker, on that I demand the yeas and nays.
  The yeas and nays were ordered.
  The SPEAKER pro tempore. Pursuant to clause 8 of rule XX, further 
proceedings on this question will be postponed.

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